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Fashion in 2018 | 05. Platforms First

In 2018, platforms will continue to grow in scale and reach, compelling fashion brands to find ways of engaging more with these powerful sales channels.
By
  • BoF Team,
  • McKinsey & Company

LONDON, United Kingdom — Online platforms have been making inroads into the fashion industry for some time and in 2018, we expect to see them further solidify their position. More than one-third of fashion executives participating the BoF-McKinsey Global Fashion Survey believe that the predominance of online platforms in fashion will be among the top three trends in 2018. In many markets, consumers look to online platforms as the first point of search, because they offer a wider variety of products, and often provide superior customer convenience and relevance, from insight-driven marketing to seamless logistics and customer care. The growth of online platforms is a testament to their success in winning over the consumer: Amazon is expected to surpass Macy's this year to become the largest apparel retailer in the US, Tmall and JD.com together control more than 80 percent of the Chinese online apparel market, and Alibaba's Single's Day is the largest online shopping day on the planet.

While online platforms continue to grow rapidly and to reach unprecedented scale, they are also investing to strengthen their position in the fashion sphere. Many of the platforms, from Amazon to Zalando and Myntra, already push their own private label fashion offerings. They will likely be doubling down on these efforts, expanding their portfolio of in-house brands and products. For example, Amazon reportedly began working recently with some of the largest athletic-apparel providers to develop sportswear. Some online platforms are expected to build their own fashion talent pool, and others will make acquisitions to get hold of such capabilities. Others might focus on building their customer base or obtaining access to new customer segments by means of acquisitions, following Flipkart, which purchased Jabong, or JD.com, which invested in Farfetch.

JD.com's Toplife | Source: Courtesy

That's not all. Online platforms are expected to expand into premium and luxury segments. To provide an attractive value proposition for high-end brands, they are taking steps like developing improved user experiences and services. Take, for example, JD.com's launch of Toplife, a luxury platform that features a premium delivery service, "JD Luxury Express." In addition, online platforms have started using acquisitions and collaborations to access premium consumers, exemplified by Tmall's official partnership with New York Fashion Week. Many platforms will develop and use new partnerships to bring external brands into their offering, through different levels of vertical integration. The depth of the partnership can range from mere order fulfilment to dedicated assortments to fully integrated programmes. For example, Tmall raised its high-end quotient with the launch of an invitation-only "Luxury Pavilion" with brands that included Burberry, Hugo Boss and Maserati, complemented with live-streaming of fashion shows. For fashion brands, collaborating with online platforms can serve as a complement to their own omnichannel offering or as a step- ping-stone to expand geographically into new markets.

But the rise of online platforms has put fashion brands in a conundrum, and many fashion companies have remained sceptical about engaging with them. In one sense, the strength of online platforms poses a clear threat as fashion companies are becoming increasingly reliant on platforms to drive business. Selling through online platforms not only means giving up control of one’s own brand and merchandise presentation, but also hands over the collection and control of increasingly important customer data to the platforms. And this in turn means that platforms are positioned to use this superior sales data and customer insights as well as their own private- label data to build their own-label collections — from merchandise development and planning, to promote online conversion.

The strength of online platforms poses a clear threat as fashion companies are becoming increasingly reliant on platforms to drive business.

Nonetheless, we expect 2018 to be the year when the question for fashion players changes from “if?” to “how?” In other words, the challenge is no longer whether to collaborate with online platforms but rather how to do this in a way that is rewarding for both parties and that positions the fashion brands in the desired way. As online platforms grow in size and market power, the risk of not being present could become higher than the downside of not having complete control of the online channel.

Brands across segments — from mass to luxury — will likely be compelled to think strategically about and engage more with these powerful channels. Fashion players need to and new ways to collaborate and contract with platforms that will provide clear benefits for both, whether it’s sharing valuable data to better understand consumers or gaining increased control over business levers like brand presentation. “Today we are not just a sales platform, we are a brand building platform” is how JD.com’s Richard Liu puts it.

This article first appeared in The State of Fashion 2018, BoF and McKinsey & Company's in-depth report on the global fashion industry. Download it here.

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